Financial Frictions and the Extensive Margin of Activity

48 Pages Posted: 26 Sep 2015

See all articles by Jean‐Christophe Poutineau

Jean‐Christophe Poutineau

Université de Rennes 1

Gauthier Vermandel

Department of Economics, Paris-Dauphine

Date Written: September 25, 2015


This paper evaluates the role of financial intermediaries, such as banks, on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms operating on the goods market with financial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to finance spendings during the setting period. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, financial frictions play a key role in determining the number of new firms. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative effect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by supply shocks.

Keywords: Extensive Margin, Financial Frictions, Financial Accelerator, DSGE model, Bayesian estimation

JEL Classification: E31, E32, E52

Suggested Citation

Poutineau, Jean-Christophe and Vermandel, Gauthier, Financial Frictions and the Extensive Margin of Activity (September 25, 2015). Research In Economics, Forthcoming. Available at SSRN:

Jean-Christophe Poutineau

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35700

Gauthier Vermandel (Contact Author)

Department of Economics, Paris-Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics